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Europe > Iceland

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Cover IMF Staff Country Reports
St. Kitts and Nevis: Selected Issues
International Monetary Fund. Western Hemisphere Dept.
This Selected Issues paper on St. Kitts and Nevis studies economic benefits from energy transition. Cheaper and more stable energy prices can support macroeconomic stability. In addition to the aforementioned effects, low and stable energy prices can mitigate the adverse impact from terms-of-trade shocks and reduce inflation volatility, thus contributing to smoothing out economic cycles. The energy landscape of St. Kitts and Nevis calls for energy reform. The two islands of St. Kitts and Nevis rely heavily on fossil fuels, primarily diesel, to power their grids without Interconnection. The analysis uses cross-country examples to examine the channels through which the adoption of renewable energy on a large scale can yield numerous long-term economic benefits. Transitioning to domestic renewable energy sources could stabilize domestic energy prices and reduce the volatility of inflation. A sharp reduction in energy costs in St. Kitts and Nevis could promote sectoral diversification. High-energy costs can prohibit economic diversification, particularly into energy intensive industries.
Keywords:
energy transition index; staff team of the International Monetary Fund; carbon capture in St. Kitts and Nevis; inflation volatility; copyright page; Renewable energy; Electricity; Energy prices; Non-renewable resources; Caribbean; Global
Cover IMF Staff Country Reports
Euro Area Policies: 2023 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Euro Area; IMF Country Report No. 23/264
International Monetary Fund. European Dept.
The 2023 Article IV Consultation discusses that the euro area economy has shown remarkable resilience in the aftermath of Russia’s invasion of Ukraine and the largest terms of trade shock in several decades, thanks to a swift policy response and a strong rebound in contact-intensive services. Looking ahead, growth is expected to pick up gradually throughout 2023 and 2024, supported by a recovery in real incomes in the context of continued tight labor market conditions, a further easing of supply constraints, and firmer external demand, even as financial conditions continue to tighten. While headline inflation has fallen sharply recently after reaching record high levels, core inflation is proving more persistent. As tight financial conditions restrain demand and supply shocks dissipate further, inflation is set to decline further but is expected to remain elevated for an extended period. Renewed supply shocks, which could result from an escalation of the war in Ukraine and a related increase of commodity prices, or a further intensification of geoeconomic fragmentation, would also push up inflation and hurt growth. On the upside, the economy could again prove more resilient than expected, especially amid a still large stock of excess savings.
Keywords:
Euro area headline inflation; inflation expectation; EU climate investment fund; EU AML authority; EU institution; EU bank; core inflation; EU economy; Inflation; Energy prices; Fiscal stance; Monetary tightening; Global; Europe
Cover IMF Staff Country Reports
Switzerland: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper on Switzerland focuses on assessing Swiss National Bank (SNB) balance sheet changes in 2022. This paper clarifies the main underlying drivers, discusses potential implications, or lack thereof, on monetary and fiscal policies, and assesses the SNB’s financial performance. Central banks’ financial results are not directly comparable with each other, given their non-profit nature, the differences in their mandates and, importantly, their different accounting policies. In particular, many other central banks would have recorded much larger financial losses in 2022 if mark-to-market accounting were applied. The SNB’s financial loss in 2022 is not expected to have an impact on monetary policy operations. The SNB has appropriately warned about risks to its balance sheet, including during periods of high profitability. In addition, the SNB put in place sound safeguards against such risks, and provided transparent communications on its investment strategy. Nevertheless, large balance sheets are subject to risks, highlighting communication challenges during periods of both large profits and losses. In this context, the SNB should continue to regularly review its investment strategy and maintain adequate safeguards.
Keywords:
ECB monetary policy; monetary policy shock; SNB balance sheet; Switzerland NBFIs; mitigation target; Greenhouse gas emissions; Stock markets; Nonbank financial institutions; Climate policy; Global; Europe
Cover IMF Staff Country Reports
Iceland: Selected Issues
International Monetary Fund. European Dept.
This Selected Issues paper on Iceland analyzes housing market risks and housing affordability. House prices in Iceland have increased markedly since the onset of the coronavirus disease-pandemic, with signs that the valuations have exceeded macro fundamentals and long-term trends. Overvaluation has important implications for macroeconomic and financial stability, and housing affordability. House price cycles seem to be closely linked with the business cycle, indicating an amplification risk in the event of price correction. Thus, well calibrated and coordinated policies are crucial to navigate the house price cycle, minimize adverse feedbacks, and reduce affordability risk. IMF’s quantitative analysis examines the interplay between house prices and related factors. The ongoing monetary policy tightening cycle should help address Iceland’s house price pressures. Further macroprudential tightening through binding and effective borrower-based measures could help contain systemic risks and create further buffers in the financial sector. In the medium term, focusing on structural measures that reduce construction costs and increase supply by eliminating red-tape and reducing the period for obtaining building permits is likely to have the highest pay-off.
Keywords:
housing affordability; D. containing housing market; C. informing housing market policy; Energy exchange transition; I. carbon absorption; Housing prices; Greenhouse gas emissions; Carbon tax; Housing; Global
Cover Policy Papers
G20 Note On Environmentally Sustainable Investment For The Recovery
International Monetary Fund. Fiscal Affairs Dept.
This Note prepared for the G20 Infrastructure Working Group summarizes the main finding of the IMF flagships regarding the role of environmentally sustainable investment for the recovery. It emphasizes that environmentally sustainable investment is an important enabler for a resilient greener, and inclusive recovery—it creates jobs, spurs economic growth, addresses climate change, and improves the quality of life. It can also stimulate much needed private sector greener and resilient investment.
Keywords:
climate change; environmentally sustainable investment; public investment management; green infrastructure; IMF flagship; transparency policy; quality infrastructure investment agenda; energy efficiency improvement investment; management practice; Public investment and public-private partnerships (PPP); Infrastructure; Climate change; Job creation; Natural disasters; Global; Sustainable growth